Best Buy Offers New Details On Bid To Regain Relevance And Customers

NEW YORK, NY - AUGUST 21: A Best Buy sign hangs on a store on August 21, 2012 in New York City. Following fresh reports of weak sales results, the electronics retailer's stock opened down about 10 percent on Tuesday. Best Buy announced on Monday that it has named Hubert Joly to be its new chief executive. (Image credit: Getty Images via @daylife)

Best Buy hopes an emphasis on customer services that aren't offered online and changes to stores will help the company regain its footing.

Weakened by a shift in how customers shop for TVs and other gadgets, Best Buy, the world's largest consumer electronics retailer, is betting that the advice and solutions it can offer at its stores will win back some of the shoppers lost to e-retailers like Amazon.com and eBay, according to a plan labelled Renew Blue that was laid out by executives at remarks this afternoon in New York.

Some of this will be enabled by changes to Best Buy's stores. The locations will be smaller, and customers entering the store will immediately encounter Geek Squad—simliar to Apple's Genius Bar—and an area to pick up items purchased online. From there, Best Buy hopes a revamped layout, including sections that highlight kitchen appliances and home entertainment systems, will lure customers to make a purchase.

Best Buy also hopes to fix some basic retailing problems discovered by the executive team recently assembled by new CEO Hubert Joly—a series of goals that includes making sure the floor is well stocked and staffed by efficient employees. Best Buy also wants to address the perception that its prices are higher than its Web competitors, an idea that executives say largely isn't true.

While still a $50 billion (sales) business, Best Buy is hurting. The stock has lost nearly half its value in the past year alone to near $15 today. That's down from more than $45 three short years ago. The company's peak came after its No. 2 competitor Circuit City folded in 2009. Since then, an increase in Web shopping has pressured Best Buy because it doesn't dominate that market like it does psychical retailing. Add a sex scandal that forced out a CEO and a potential takeover bid from its founder, Richard Schulze, and the picture of Best Buy's problems begins to came into focus. "It feels like that many problems are the result of our own making," says Joly. "There's nothing actually wrong with our market. For some reason, it seems like we took our eye off the ball and failed to focus on innovation."

There's something near schadenfreude about watching the drama unfold at hapless Best Buy. The company has been run by three executives in the past year alone, and if the buyout comes through from Schulze, it could very well see another within a few months. It's unlikely to get terribly easier any time soon. Turnarounds are hard. And as much as we enjoy a comeback story, it's quite unclear whether that's possible here.

Joly's efforts mostly focus on making the best of showrooming, where customers visit a store and then use a smartphone to find a cheaper price online. To be sure, Wal-Mart and Target, two other massive big-box retailers, face this problem. But it's become especially linked to Best Buy. The company, in facts, estimates that some 40% of all customers visit without the intention of purchasing anything.

To reverse this, Best Buy vows greater attention on tying Web and mobile shopping with the in-store experience. Moving directly against scan-and-scram, Best Buy began a relationship with Red Laser, the company behind the mobile app that best enables showrooming: the app now lets Best Buy offer coupons and one-click ordering on Bestbuy.com to customers already in the store.

"You have to embrace the trend of showrooming. You want to take advantage of customers coming into our stores," says Steve Gillett, Best Buy's president. "We definitely have room to improve. The performance over the past few years have been unsatisfactory. There's not one person who walks around thinking that we've hit out of the park in the past few years and quarters."

Gillett carefully emphasized that this is a work in progress. "This is the beta version," he says. "There are no scared cows."

Best Buy will also hope to improve the return generated from assets. This will include slashing expenses by 5%, while boosting operating margins to 5.6% form 4.2% today and return on invested capital to 13.15% from 11.1%. Though, Joly offered no timetable. An early prototype store shows remodeled locations have a 37% ROIC, up form 30% in existing stores. Joly also gave a brief glimpse at future real estate plans: a series of smaller stores and medium-sized locations. With 70% of Best Buy's leases expiring within the next six years, it will take time to make this transition. As it will for any of this ambitious bid to take hold.

"It's been said that I don’t let any grass grow under my feet. Our view is going to be act, act and act," says Joly. "As for when this starts to take effect, I'm not going to say." Breathlessly, he continues, "You can imagine that people inside are sick and tired of losing."